Audit Shows Lingering Financial Flaws at Department

The Department of Education has shown notable improvement in its
financial reporting and management activities, but not enough to win a
"clean" audit, a report from independent auditors revealed last
week.

The report by the accounting giant Ernst & Young, released Feb.
28, points to several recent steps as encouraging, such as the
establishment of a management- improvement team last spring by
Secretary of Education Rod Paige and the department's decision to begin
preparing monthly financial statements.

That said, problems remain, according to the Ernst & Young
report for fiscal 2001, which ended Sept. 30.

"While progress has been made, significant financial- management
issues continue to impair the department's ability to accumulate,
analyze, and present reliable financial information," the report says.
"These weaknesses are primarily due to the absence of certain
components of a fully integrated financial-management system."

The department has had a long history of financial-management
difficulties, and has been unable to get a clean audit the past four
years. An audit opinion is considered "clean" when an institution can
adequately document all aspects of its financial statements and
demonstrate their reliability.

In addition, the agency has suffered a handful of high-profile cases
involving fraud and theft. Government investigators have repeatedly
concluded that the department is particularly vulnerable to waste,
fraud, and abuse.

The Education Department's financial system is in poorer shape than
those of most other federal agencies. Of the 24 agencies reporting
results for fiscal 2001, 18 received "clean" audits, according to a
Feb. 28 press release from the White House Office of Management and
Budget. Other agencies that failed to get clean audits include the
Department of Agriculture and the Agency for International
Development.

Hurdles Remain

William D. Hansen, the deputy secretary of education, said in an
interview last week that while the Education Department still had
considerable work to do, he was pleased with the new findings.

"We feel very positive about the results that we showed for five
months' worth of work," he said. Mr. Hansen emphasized that the audit
does not reflect all the work under way at the department, since it
covers the period ending Sept. 30. The department first announced its
plans for improving financial management last May.

Mr. Hansen noted a reduction, from three to one, of "material
weaknesses" in the department's financial management identified by
auditors, and pointed out that this year's audit has fewer
recommendations for corrective actions.

"We are not there yet," Mr. Hansen added. "There still are some
major hurdles that we've got to clear to accomplish our goal of getting
a clean audit next year."

At the same time, Mr. Hansen stressed that simply getting a good
audit is not necessarily an end in itself.

"The [clean] audit is obviously an important goal, but having all
our processes cleaned up and working well is really our goal, to have a
culture of accountability," he said.

As of last Thursday, spokesmen for the House and Senate education
committees had not yet seen the Ernst & Young report, and declined
to comment.

The report points to a number of problems that occurred in fiscal
2001 as a result of the troubled financial system. For example, 50
account balances in the department's primary financial statements
changed between the first and second versions provided for audit.

The auditors say the department continues to compile financial
statements through a multistep process that uses a combination of
manual and automated procedures.

"These processes increase the risk that errors may occur in the
department's financial statements," the report says.

Mr. Hansen suggested that the department's efforts would be further
helped now that the department has a new chief financial officer and an
assistant secretary for management, positions long vacant.

Just last week, Jack Martin was sworn in as the chief financial
officer, and William J. Leidinger was sworn in as the assistant
secretary.

Vol. 21, Issue 25, Pages 28, 35

Published in Print: March 6, 2002, as Audit Shows Lingering Financial Flaws at Department

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